Debt Limit Increase Results Could Delay Medical Device Tax

Tax Professionals' Resource October 16, 2013 — 1,517 views

If Republicans from the House of Representatives have their way, the medical device tax might be delayed by up to 2 years. The repeal of the tax is one of the preconditions the Republicans have set before they will give their support to raise the debt limit.

The Medial Device Tax and its Implications

The Medical Device Tax is an excise tax of 2.3% on medical devices like pacemakers and defibrillators and it is expected to cover the costs of the expansion of health care system as proposed by the Affordable Care Act. This tax was levied based on the notion that industries that are expected to benefit from the proposed expansion should help sustain it. Most of the contribution would come from insurance companies and the pharmaceutical industry. The Act is expected to bring in more than 30 billion into the state treasury in the next 10 years. You may say it is not much, compared to what the US spends on healthcare, but every penny will count when it comes to improving the federal budget.

Why Are Some Republicans Opposed to this New Tax?

Republicans do not like this new tax and they have made their views pretty clear. By threatening to stall the increase of the debt limit, they are trying to force the government to repeal this tax. Medical device makers have also shown an aversion to the tax and they are also lobbying hard. They are citing a study by the Advanced Medical Technology Association, which claims that the tax will hamper innovation, cause manufacturers to shift operations overseas, killing 43,000 jobs in the US.

Another side effect of the republican move would be a curtailing in the health insurance benefits that are currently accruing to lawmakers and other political appointees.

Senate and House Leaders to Hammer a Deal

Senate leaders are already working on an agreement that will stop the fiscal standoff. But it does not end here. They will then have to get the lawmakers on board, before the end of this week, when the U.S borrowing authority will run out.

If the Senate plan is passed, U.S lawmakers will have until December 13th to finish budget talks, provide funding until January 15, 2014, and extend the borrowing authority until February 7th. If the standoff does not end soon, the US will run of out of cash to fund the government. It even risks defaulting on its debt payments.